The court of appeal has overturned last year’s controversial ruling in the High Court which would have seen Marks and Spencer entitled to a refund of over £1m in overpaid rent following the exercise of a break clause in its lease.

The decision relates to the exercise by Marks and Spencer of a break option in its lease of its former head offices in Paddington. The break date in the lease fell in the middle of a quarter. On the quarter day prior to the break date Marks and Spencer had paid the full quarter’s rent along with other sums including service charge and a car park licence fee. Marks and Spencer subsequently argued it was entitled to a refund of the sums which it had paid for the period after the break date in which it had not been in occupation of the premises.

In 2013 the High Court had ruled in favour of Marks and Spencer, allowing its claim to be reimbursed to the sum of approximately £1.1m.  As the lease had been silent on the issue, the judge had implied a term into the lease requiring the overpaid sums to be refunded.

However, the Court of Appeal has overturned this decision, ruling that such a term should not have been implied. Allowing the Landlord’s appeal, it decided that the lease, read as a whole and against the relevant background, would not be reasonably understood to include a term for providing such reimbursement.

The decision sees a return to the position which had been generally accepted prior to the High Court’s controversial ruling– that without a clear and express apportionment provision in the break clause, a tenant will not be entitled to a refund of any overpaid rents. The Court of Appeal’s judgment will no doubt be welcomed by Landlord’s, many of whom feared they may be forced to refund portions of rent and service charge had the High Court’s decision been upheld.

The judgment provides useful clarity to both Landlords and Tenants negotiating the terms of break clauses. In particular it highlights the importance for Tenant’s of ensuring either that any break date falls immediately before a rent payment date, or that the break clause contains provision for the reimbursement of any overpaid rent. Following the Court of Appeal’s decision, tenants will now find it very difficult to find any legal arguments for the reimbursement of any such rent where the lease does not expressly provide for this.

It will be interesting to see, given the sums involved in the case, whether Marks and Spencer seek to challenge the matter in the Supreme Court.

For any advice or information in relation to commercial leases, whether you are a landlord of commercial property or a business looking to take up or get out of a lease agreement, our team of commercial property solicitors would be happy to advise you further.